Closing Your Company the Tax-Efficient Way
Strike-off or a Members Voluntary Liquidation, the £25,000 trap, and how Business Asset Disposal Relief can turn a dividend bill into a fraction of the tax. The companion to our dormant-company guide.
Voluntary strike-off using form DS01
For a company with little or nothing left in it, a voluntary strike-off is the simplest and cheapest way to close. You apply to Companies House on form DS01, and once everything is settled the company is removed from the register. It costs £13 online or £18 by post.
- The company must not have traded or sold off stock in the last 3 months
- It must not have changed its name in the last 3 months
- It must not be threatened with liquidation or have a creditor agreement, such as a CVA, in place
Settle with HMRC first: file your final accounts and Company Tax Return, pay the final Corporation Tax, close PAYE and VAT, and clear company debts. HMRC can object to a strike-off, and can even restore a struck-off company to chase money owed.
The £25,000 trap on a strike-off
When you strike a company off, money paid out to shareholders is treated as a capital distribution, taxed at capital gains rates, only up to £25,000 in total. Go a pound over and the whole lot is reclassified as a dividend, taxed as income at up to 39.35%. It is a cliff edge, not a tax-free band: distribute £26,000 and the entire £26,000 is taxed as a dividend.
If you are only a little over £25,000, you may be able to draw the surplus down as salary, a pension contribution or dividends before you stop trading, then strike off the small remainder as capital. This needs planning while the company is still active.
An MVL for larger reserves, and BADR
Where more than £25,000 is left in the company, a Members Voluntary Liquidation lets the whole distribution be treated as capital, not a dividend. With Business Asset Disposal Relief the qualifying gain is taxed at just 18%, against up to 39.35% as a dividend. An MVL is a formal solvent liquidation run by a licensed insolvency practitioner, so it costs more than a DS01, but on a five or six-figure reserve the tax saved usually dwarfs the fee.
- Extracting £100,000 of reserves to one director-shareholder
- MVL route: gain after the £3,000 exempt amount is £97,000, tax with BADR at 18% is £17,460
- Dividend route: taxable after the £500 allowance is £99,500, tax at 35.75% is £35,571
- Tax saved by using an MVL with BADR: £18,111
BADR needs the company to be your personal company, broadly at least 5% of shares and votes held for at least 2 years, with you an officer or employee. The relief is capped at a £1 million lifetime limit. The figures above are illustrative and assume a full BADR claim, a negligible base cost and no liquidator fee.
The TAAR: do not wind up and restart
The Targeted Anti-Avoidance Rule stops people winding a company up to take cash out as capital, then carrying on the same trade. Trip it and the whole distribution is taxed as income, a dividend, instead of capital. It is aimed at phoenixism, not at a genuine closure, but it pays to know the four conditions, because all four must be met for it to bite.
- You held at least 5% of the company before the winding up
- It was a close company at some point in the 2 years before wind-up
- Within 2 years of the distribution you carry on, or are involved with, the same or a similar trade
- A main purpose of the wind-up was reasonably to avoid or reduce Income Tax
Keep clear evidence of why you are closing, such as retirement or a move to employment. If you may trade again, wait beyond the two years, or take advice first. The TAAR applies to winding up through an MVL, not to a simple strike-off under the £25,000 limit.
Common questions
Is a strike-off or an MVL cheaper for closing my company?
It depends almost entirely on how much cash is left. A strike-off using form DS01 costs £13 online or £18 by post and suits a company with £25,000 or less to distribute. Above £25,000, a Members Voluntary Liquidation usually wins, because it keeps the payout as capital and can use Business Asset Disposal Relief at 18% rather than dividend tax of up to 39.35%.
What is the £25,000 trap on a strike-off?
On a strike-off, a final distribution to shareholders is treated as capital only if all such distributions total £25,000 or less. Go a pound over and the whole amount is reclassified and taxed as a dividend, as income. It is a cliff edge, not an allowance off the top, which is exactly where a Members Voluntary Liquidation earns its keep.
How much tax does Business Asset Disposal Relief save?
On qualifying gains, BADR charges 18% rather than dividend rates of up to 39.35%. Extracting £100,000 of reserves, the tax with BADR is about £17,460 against about £35,571 as a dividend, a saving of roughly £18,111. BADR needs broadly 5% of shares held for at least 2 years and is capped at a £1 million lifetime limit, so confirm you qualify before relying on the rate.
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For guidance only — this factsheet does not constitute professional advice and is not a substitute for advice based on your specific circumstances. Whilst every care has been taken in its preparation, it may contain errors for which we cannot be responsible. Figures are for the 2026/27UK tax year (England, Wales & Northern Ireland) and may change. Last reviewed 25 April 2026.